Event Report: 28 November: The Impact of the US-China Trade War on EU-China Relations

10 December 2018

On 28 November, the EU-Asia Centre hosted a discussion between high-level representatives of Beijing-based think tanks close to the Chinese executive, and a number of representatives from the European Commission and the European External Action Service. The topic of the meeting, hosted by Senior Advisor to the EU-Asia Centre John Farnell, was the ongoing trade conflict between the US and China and its potential implications for Sino-European relations as well as the EU economy. As President Trump continues to impose tariffs on Chinese imports, pressure on both the Chinese economy and the international trading system continue to rise.

John Farnell underlined that even though the effects of Trump’s imposition of import tariffs on the Chinese economy have been relatively marginal up to today, the RMB has depreciated by 10% over the past four months and the Chinese economy has notably become nervous. President Trump, well aware that China-bashing serves him well electorally, expects Beijing to translate commitments previously made on strengthening the protection of IP rights, the abolition of joint venture requirements, and most crucially the gradual bringing to a halt of state aid to SOEs, to concrete action. As the EU shares many of these concerns, it is highly unlikely that Brussels will enter into a full-flagged unconventional alliance with Beijing against Washington – however, European business may be interested in replacing US investment and sales of high-end technologies.

Representatives from the China Institute of Reform and Development (CIRD), the BeijingForeign Affairs University, the Development Research Center of the State Council, and the Chinese Mission to the EU shared Chinese perspectives on the ongoing trade conflict. They forecast a significant value drop of the euro – a drop even more significant than that of the RMB – and hypothesized that European industries may in fact be amongst those most heavily affected. They recalled that China continues tearing down economic frontiers, as illustrated by the recent Import Expo hosted in Shanghai – as such, Beijing has continuously loosened the so-called “negative list” for foreign investment. It is crucial that Europe acknowledges this positive development.

Meanwhile, Beijing is unsure how to continue its opening-up and reform process, started 40 years earlier. It continues to prioritize the opening up of its service industry and the fuelling of domestic consumption as a sustainable driver for economic growth. In any case, China’s future opening up must cater to the needs of the Chinese people, meaning that sectors high in consumer demand come first – this is where European businesses can benefit. Beijing will also continue reforming SOEs towards a state of “competitive neutrality”, expressing the need for SOEs and private businesses to fairly compete on a level playing field.

European Commission staff voiced concern over the low speed of the implementation of reforms President Xi committed to. Chinese representatives again underlined the aforementioned reforms that were already taking place, urging Commission officials to, as President Xi said, not be anxious about the speed of the implementation. China must be granted some time to overcome a number of internal difficulties, including cases of vested interest by businesses.